Apple Offers CEO Cook’s Tax Remarks; Will Pay $7B in Taxes This Year

By Tiernan Ray

In advance of Apple (AAPL) CEOTim Cook‘s appearance before the U.S.Senate Permanent Subcommittee on Investigations tomorrow, to discuss overseas cash holdings and tax policy, Apple a short while ago posted Cook’s prepared testimony.

Among the points Cook makes are that Apple has created jobs:

Apple has been a powerful engine of job creation in the US. Apple estimates it has created or supported approximately 600,000 jobs in the US, including nearly 50,000 jobs for Apple employees and approximately 550,000 jobs at other companies in fields such as engineering, manufacturing, logistics and software development. Approximately 290,000 of these American jobs are related to the new “App Economy” launched by Apple’s App Store. In less than five years, Apple has paid third-party app developers worldwide over $9 billion in connection with sales of their software to Apple customers.

Apple also notes it will pay over $7 billion in taxes this year:

Apple is likely the largest corporate income tax payer in the US, having paid nearly $6 billion in taxes to the US Treasury in FY2012. These payments account for $1 in every $40 in corporate income tax the US Treasury collected last year. The Company’s FY2012 total US federal cash effective tax rate was approximately 30.5%.1 The Company expects to pay over $7 billion in taxes to the US Treasury in its current fiscal year. In accordance with US law, Apple pays US corporate income taxes on the profits earned from its sales in the US and on the investment income of its Controlled Foreign Corporations (“CFCs”), including the investment earnings of its Irish subsidiary, Apple Operations International (“AOI”) [...] In FY2012, the Company paid approximately $327 million in the employer’s share of payroll taxes for its US-based employees and $830 million in income taxes to state governments.

Apple “does not use tax gimmicks,” the testimony states. The paper offers some broad background, including statements such as “Apple is an American success story.”

The company also notes its stock is held by some of the country’s largest funds:

Based on the latest available public filings, at least twelve public and private pension funds in the US held Apple stock as their top equity investment, including funds for public employees in Michigan, Ohio and Kentucky. At least twenty-nine such funds identified Apple as a top five holding. All told, these entities own approximately $14.6 billion worth of Apple stock, which entitles them to annual dividend payouts totaling approximately $396 million.4 At approximately 3% of the S&P 500, Apple is one of the most-widely held equities in the mutual fund industry.

The article ends with the observation that some in Congress are right to say U.S. corporate tax policy “undermines U.S. competitiveness” because it “applies industrial era concepts to a digital economy,” and proposes what the company characterizes as Apple-like simplicity in reforming the code, including “Be revenue neutral; Eliminate all corporate tax expenditures; Lower corporate income tax rates; and Implement a reasonable tax on foreign earnings that allows free movement of capital back to the US.”

The company “hopes the Subcommittee will see that these recommendations aim to create meaningful change and go well beyond what most US companies propose.”

Apple joins a long line of firms, especially tech firms, such as Cisco Systems (CSCO), and other Silicon Valley names, that have pressed for measures to encourage repatriation of overseas cash holdings.

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There are 7 comments

MAY 20, 2013 3:40 P.M.

Bob wrote:

Doesn't congress have anything better to do than go after a Company that basically added thousands of jobs to the economy.. They should be kssing Apples butt instead of questioning them on taxes.

MAY 20, 2013 3:41 P.M.

hr wrote:

excellent letter

MAY 20, 2013 3:46 P.M.

A.S. wrote:

This means higher income in 2013 vs. 2012 since there was no change in corp tax rates, higher tax means higher income, much higher than estimates which now expect a 10% drop in earnings for fiscal 2013.

MAY 20, 2013 4:09 P.M.

Brick wrote:

Why would we think a Democrat Senate will be sympathetic to a successful business?

MAY 20, 2013 5:13 P.M.

Anonymous wrote:

you remain an outstanding external branch of the Apple press machine.

MAY 20, 2013 9:41 P.M.

Just Facts wrote:

Where are those brain-dead-bunch who say apple being US company claiming buying Samsung products would be unpatriotic? Apple added some slightly better jobs" than Mc Donalds did last few decades? Everyone who thinks apple store's are always crowded because people are interested in their products and in line to buy them are pure fools. Most of them are waiting their turn to talk to Ifix your Icrap crew at genius bar for %300 more than a third party store fee. Of course while they are bored to death they just surf the internet on display machines. The overly exaggerated "nice" attitude of wannabe hipster crew is ready to hand you the lube bottle and ask you pose proper body position to perform their duties as you smile and accept it gladly and later you come home and tell your story that put a lot of emphasis on "how great of an experience" you had in their hands. Hearing your story of course your friends and family members get intrigued to have the same experience. This is a small story of how stupidity becomes epidemic in a society.

Here are some more technical stuff. Make sure you continue to have the fake smile as you finish it.

Apple Operations International has not filed a tax return in Ireland, the United States or any other country over the last five years. It had income of $30 billion between 2009 and 2012. By shuttling revenue between international subsidiaries, Apple was able largely to sidestep paying taxes. Senate investigators also found evidence that the company turned over substantially less money to the government than its public filings indicated.
Tim cook says "If Apple had used its overseas cash to fund this return of capital, the funds would have been diminished by the very high corporate U.S. tax rate of 35 percent,” Mr. Cook is planning to testify, according to the prepared text. Apple “believes the current system, which applies industrial era concepts to a digital economy, actually undermines U.S. competitiveness.

..and therefore this is what average joe has to eat:

Because of these strategies, tax experts say, Washington is forced to rely more and heavily on payroll taxes and individual income taxes to finance the government’s operations. For example, in 2011, individual income taxes contributed $1.1 trillion to federal coffers, while corporate taxes added up to $181 billion.

About Tech Trader Daily

Tech Trader Daily is a blog on technology investing written by Barron’s veteran Tiernan Ray. The blog provides news, analysis and original reporting on events important to investors in software, hardware, the Internet, telecommunications and related fields. Comments and tips can be sent to: techtraderdaily@barrons.com.